Bharat going digital for payments

India, the last major open market for internet companies, has seen global firms launch digital payment platforms such as Google Tez, Amazon Pay and WhatsApp. More Indians from smaller towns and cities are paying digitally for goods and services, raising expectations of sustained growth for non-cash payments, even as Reserve Bank data indicates the sharp spike in transactions following the 2016 note ban has evened out this year.

Payments company executives estimate that card transactions in towns with populations of up to 1 million have doubled in the two years since demonetisation.

“Across cities like Udaipur, Aligarh and Hubli, merchants are open to adopting QR code for payments and they are platform-agnostic,” said Amrish Rau, CEO of PayU India. “This was never the case in my two decades of experience in the payments industry.”

Immediately after demonetisation was announced on November 8, 2016, there was a spurt in digital payments.

Small-Ticket Spends

Debit card transactions at point-of-sale terminals surged, growing 105% in FY17, according to data from RBI.

Until August this year, debit card swipes had grown 37.5% over last year, showing tapered growth. But industry executives told ET that tier-II and III cities are witnessing a rise in transactions even as the top metros display signs of saturation.

“Since these are small-ticket spends and the base is very low it might not be reflecting majorly in the RBI data, which gives more of a macro perspective,” said Rajeev Agrawal, chief executive officer of Innoviti Payment Solutions, which works with banks to onboard merchants for card payments.

“There is a general increase in usage of cards for smaller-value transactions, which is a clear indication of the fact that it is eating into cash payments,” he said.

Industry experts said that while debit card transactions may be slowing, more people are using newer modes of digital payments for daily purchases.

“Adoption of debit cards shot up just after demonetisation as people had run out of choices and wallets did not (yet) have (as much) merchant acceptance like banks,” said Bhavik Hathi, managing director at Alvarez and Marsal, a Mumbai-based consultancy.

“As merchants started accepting wallets like Paytm or PhonePe for digital transactions, the trend has shifted and a lot of small-value retail payments could have moved away from cards,” he said.

A 37% jump in card transactions this year following an over-100% increase in 2017 is still “pretty impressive”, Hathi said.

UPI Aided Digital Surge

The shift to digital payments has also been boosted by the rapid expansion of the Unified Payments Interface (UPI).

National Payments Corporation of India (NPCI), which manages the platform, has recorded 482 million UPI transactions in October 2018 as against 0.2 million in November 2016.

In November 2017, there were 105 million UPI-based transactions.

“What demonetisation has done for digital payments is more than what any other initiative could achieve before,” said PayU’s Rau, pointing to the growing awareness amongst entrepreneurs who are creating operating models with digital payments as the cornerstone.

Fintech entrepreneurs are, however, concerned over recent regulatory strictures, including the ban on private companies accessing customer data from the Aadhaar platform.

“We have the technology, we have the intent, but the policy-tightening around mandatory KYC (know your customer) norms, ban from access to Aadhaar, (and) complete localisation of data within six months have affected our businesses,” said the founder of a large digital payments startup.

Mobile wallets — among the first non-bank instruments to drive digital payments — have seen a growth slump after the rapid expansion of around 150% in the previous two years. Growth in 2018 slowed to 78% indicating an overhang due to regulatory hurdles, said industry executives.